Biomass
$1
+0%
Broad Spectrum Distillate
$3,674
+0%
CBD Isolate
$1,157
-16%
CBG Isolate
$7,408
-1.8%
Hemp Seed Oil
$109
+0%
MCT Oil
$109
+0%
Water Soluble CBD
$2,373
-0.7%
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27. May 2020
Global Market Watch News Production Trends & Insight

Seed-to-sale: Buyback Programs Help Mitigate Hemp Harvest Risk

The 2020 growing season could well be one of the most significant for the hemp industry and as a result for the whole downward CBD market. This is leading to greater vertical integration between farming and manufacturing partners, with the introduction of seed-to-sale schemes and crop buyback programmes, designed to help mitigate some of the risk during this crucial season.

Biomass Oversupply

Although 2019 saw a huge increase in hemp growers globally, the ‘green rush’ that caused this spike has progressively reduced during 2019, and early 2020. Prices have collapsed during the past year across all categories of raw materials, and despite a burgeoning consumer market – for CBD products in particular – over-supply, coupled with increased refinery operations, have both led to significant price depreciations.

Reports from April suggest that producers still have significant stocks of biomass left over from the 2019 season, that remain unsold. This over-production is likely to cause concern to anyone planning for the forthcoming growing season.

2019 demonstrated that the CBD market, even with its meteoric continued growth, currently has a top heavy supply chain, and with most producers reporting that they remain focussed on the CBD market for end users, estimates point to there being another glut of harvested crop come the end of 2020. Even though there are now signs that the depreciation in biomass prices has left hemp fibre looking attractive for new industry applications, demand from these fledgling users is unlikely to provide sufficient demand to balance the predicted supply output for this year.

In Europe, total hemp acreage is looking like it will be up year-on-year, and China continues to establish the region as a major hemp producer. In the US, in states with mature hemp industries like Colorado and Montana growing applications  are down on 2019 figures, however in new hemp states, like Florida and Texas, regulators are reporting high-demand for growing licenses.

As a result of this some farmers are planning to scale back their cultivation capacity for 2020. Price depreciation; uncertainty surrounding the impact of COVID-19; along with increasing regulatory scrutiny, are all likely to be key considerations for farmers going into the 2020 season.

Mitigating Production Risk

With biomass prices weighing heavily on farmers, new initiatives are starting to show how the market is evolving to help mitigate some of this uncertainty.

Farmers are looking for ways to manage risk when it comes to crop yield and as such many have switched to sourcing seeds validated through genetic, germination and stability testing. By ensuring quality at the seed stage, farmers can more accurately predict output yields and prevent damaged or unusable crops that fall short of regulatory requirements on cannabinoid content.

Hemp Buyback Programs

In some instances farmers are collaborating on an even greater scale. Vertical integration between farming and manufacturing partners is resulting in seed-to-sale CBD partnerships where manufacturers with experience in hemp genetics work with farming partners to provide buyback programmes, which guarantee future delivery prices for farmers.

North American seed-to-sale CBD manufacturer EcoGen announced their hemp buyback program in April. During this important planting season EcoGen will aid hemp farmers by providing competitively priced feminized seeds and following harvest, EcoGen will arrange to purchase back from farmers any unsold hemp biomass grown from the seeds bought from EcoGen that meet the company’s standards and arrange for shipping back to the facility for processing.

EcoGen Labs views the hemp buyback program as establishing a more formalised working partnership with the farmers who’d likely be purchasing genetics from the group anyway. Farmers still make the day-to-day operational decisions on how the crop is grown. EcoGen offers its support on the genetics side of things, deploying its team of hemp geneticists to help farmers select the perfect strains for geography, growing style, and end formulation goals.

This type of arrangement is beneficial for all parties. It helps farmers ensure that they are growing a crop that will have a guaranteed return, upon harvest. And, for the manufacturer, they can easily audit the entire seed-to-sale process, as well as strategically source the necessary biomass to run refinery and extraction operations in the future, at fixed prices.

Garden Om is another US-based company offering a similar contract farming and hemp buyback program to its partners. The company operates on a much smaller scale to EcoGen, but by working with a collaborative of farming partners Garden Om is able to guarantee the quality and composition of their sourced biomass and ultimately their extracted CBD oil.

Garden Om’s Two Beards™ strain is grown exclusively by small batch farmers across six states. These artisanal family farms—ranging from a women-owned operation to a former veteran turned grower—have all gone through a rigorous vetting process to ensure that the crop is grown using 100% organic and sustainable methods. Farmers plant around 2 or 3 acres of hemp.

At the end of each growing season, Garden Om buys back the crop at double the market rate. “Our thinking is, we can pay farmers that much for a quality product and still make money,” describes founder and master grower Joe Jernegan. “We pay farmers more because they deserve more. We support the local community and American farmers. And we know we’re getting consistency.”

Up until the recent changes in cannabis law, farming has waned in popularity over the past 30 years. “Now, people want to farm again,” comments Jernegan. “There’s this tidal wave of interest. And if there is ever going to be a time where the small farming model can make a comeback, this is it.”

Jernegan mails Two Beards™ clippings to farmers before growing season and walks them through the process of planting. Throughout the year, he works directly with farmers—via phone, text, DM and series of weekly YouTube videos—to ensure that the crop is grown correctly. “It is unusual for a company to be so hands-on,” Jernegan says. “But for us, it works. And it’s how we separate ourselves from the competition.”

Farmers hand harvest and dry the crop, then cure the plant out of the sun to preserve a high level of CBD while limiting the production of THC. Farmers then send the crop to Garden Om for processing.

Regulated Industry

For hemp growers looking to supply the CBD industry then cannabinoid concentrations are critical to ensure that crops remain legal and saleable. Farmers need to reply upon access to seed strains and cultivation techniques that can help them mitigate any risk when it comes to crop quality.

Partnering with established producers helps farmers to meet their duties under a burgeoning compliance framework and establish a well-documented audit trail for all harvested crops.

For producers and refiners they need to be able to easily track ingredients from seed-to-sale to help ensure that they meet regulatory requirements.

Farming cooperatives

Farming cooperatives exist for many other crops and have been around for years.  Organisations like Openfield, in the UK, help farmers manage crop risk and ensure that they can accurately predict sale volumes through the growing season.

With so much uncertainty facing hemp farmers, from price depreciation to the impact of COVID-19 and increasing regulatory scrutiny, schemes like this provide all parties with much needed risk-management solutions, whilst also ensuring that all parts of the supply chain remain viable and profitable.

This type of arrangement is likely to become a standard operating practice across more of the industry, in future seasons.

 

Author: Matthew Driver, Senior Consultant

Market Analysis | Insight & Trends